Oral Contracts for Home Improvement Work Can Be Enforced

Home owners that engage the services of a contractor for home improvement work are generally protected by the requirement that a home improvement contract be in writing and contain certain specific requirements. California Business & Professions Code section 7159.

Last month, the California Court of Appeal, Second District upheld enforcement of an oral contract for home improvement services. Hinerfeld-Ward Inc. v. Lipian (2010) 188 Cal.App.4th 86.

In Hinerfeld-Ward the Lipians retained an architect to design a major remodel to a single family home. They retained a contractor that left the job because of repeated design changes and replaced that contractor with Hinerfeld. No written contract was entered.

The Lipians terminated Hinerfeld, leaving an unpaid balance to him of $200,000.00. Hinerfeld sued the Lipians who counterclaimed, stating in part that Hinerfeld violated section 7159 making the oral contract void. The Court of Appeal upheld the jury's finding of a contract that Hinerfeld substantially complied with and affirmed the trial court's award of damages in favor of Hinerfeld in addition to attorneys fees.

The Appellate Court noted that enforcement of the contract was justified: to avoid unjust enrichment to the Lipians, and because the Lipians had the benefit of their architect to look out for their interests.

The Appellate Court also upheld an award of attorneys fees based on Civil Code section 3260 et al. That, and related sections, provide for a penalty to be assessed where one wrongfully withholds amounts owed to the contractor pursuant. The Appellate Court found that the penalty contemplated under the statutory scheme also includes an award of attorneys fees under 3260.1. Consequently, $200,000.00 in attorney's fees was awarded to Hinerfeld.

The opinion is silent whether the Lipians relied on advice of counsel to withheld payment or to support a belief they ultimately could avoid payment to Hinderfeld on an assertion that the oral contract was void. However, it is a helpful example of the importance of retaining legal advice before relying upon or taking definitive action where there is a potential dispute.